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Building the assets of the poorest: Savings-led financial services

Discussion led by Jeffrey Ashe, Carrie Keju and Lauren Hendricks
Hosted by


20-22 June 2006

SARPN acknowledges the USAID as the source of this document.
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This Speaker's Corner on savings led microfinance led to a lively discussion of the issue.

The first day's discussion was led by Jeff Ashe (Oxfam America) and focused on whether or not this approach was appropriate for serving the vast numbers that traditional microfinance has not reached and is unlikely to reach or serve. The answer was yes, of course. There is a growing awareness as expressed by the participants that the poorest do save, especially in rural areas given the variability of cash flow in agricultural villages. The challenge is moving savings from under the mattress and from traditional ROSCAS into the groups where the members can take out loans when they need them and where the interest on the loans builds the group's fund through compound interest. Funding these groups at least in part through remittance payments from abroad was also discussed. The sustainability of these programs is defined as the groups graduating quickly and the level of selfreplication where group leaders train new group. The most important indicator is the cost per group or per group member.

What the methodologies developed by CARE, Pact, CRS, Oxfam America and myriad of Indian NGOs have demonstrated is that with a well designed methodology and an adequate service delivery structure that villagers (and city dwellers as well) will join these groups. The fact that group leaders train other groups on their own account, that the savings rate increases after the group has proved itself, and that the now organized group serves social as well as economic functions and becomes a platform for other development inputs illustrates the attractiveness of the approach. Many said they prefer to take loans from their group rather than an MFI. Why should they pay interest to an outside agency when the interest they pay builds their own loan fund? For others, especially in India, the now organized and trained group is a good candidate for a loan from an outside source. With this model NGOs train and banks lend with each institution fulfilling its appropriate role.

Like any methodology, however, there are limitations as well as advantages, especially when the groups are not well trained. There is the risk that the leaders will capture the savings of the group, or that funds will be misused, or that when the fund builds unwise investments will be made. This underscores the need for ongoing monitoring of these groups after they have graduated. Another risk is pooling money from several groups into a larger cooperative structure -- costs increase, transparency declines when all transactions cannot be observed, and the risk of large loans going to a few becomes a real threat.

Sharing our experiences and methodologies will help the savings led movement to move forward. Substantial in depth research is required to understand not only how the groups function, but who is being reached, who is being left out, the impact of these groups on power relations between groups and families, and how what is learned in these groups ripples out into the larger community. It may be that the ripples are more interesting in terms of impact than what the agencies are doing as they train these groups.

On Day Two, Carrie Keju (PACT) led the discussion of the Microenterprise Results and Accountability Act, examined approach innovations (particularly as regards the MRAA), and addressed the need for industry-wide standards and ratios for savings-led financial services. The responses generally focused on the need, possible options and necessary components of savings-led ratios. As regards innovations to increase the approach’s breadth of application and broader applicability as a tool in meeting the MRAA mandate, consensus was that the approach was sufficient for the economic inclusion of the very poor and that innovations would make it unnecessarily complex and unwieldy, leading to failure at the group level.

On Day Three, Lauren Hendricks (CARE) led discussion that focused on women and the targeting of special populations, such as people living with HIV/AIDS. The discussion began with a deliberately provocative questioning of the impact of savings-led microfinance on women's empowerment. This provoked a discussion of the intent of savings led microfinance, and the need to require social impacts of a financial service oriented intervention. While most respondents agreed that the economic benefits alone were enough to warrant a focus on scaling access to savings-led financial services, many still included their own evidence of important social impacts. Representatives from multi-sectoral organizations noted the ability to integrate savings-led financial services with programming such as education in order to leverage social and economic impacts. Conversation also focused on the target of women only versus targeting both men and women for inclusion in savings led groups. Positive examples were given of the inclusion of men or community leaders in the groups, but reservations were also raised regarding the change in power dynamics within the groups. Finally, day three included some discussion around targeting special populations. Examples were given of partnering with non-financially oriented NGO's in order to reach particular target groups.

- Jeff Ashe, Carrie Keju, and Lauren Hendricks

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